News:

The Book of the Diner is well worth preserving. I only wish it had reached a broader audience when it might have mattered more. That is a testament to the blindness of our culture. If there is a future to look back from, one difficult question historians will have to ask is how we let this happen, when so many saw it coming. This site has certainly aggregated enough information and critical thinking to prove that.[/b]

← The Fed Is Offering $100 Billion a Day in Emergency Loans to Unnamed Banks and Congress Is Not Curious Enough to Hold a HearingTom Mueller’s New Book Shows How Whistleblowers Are Increasingly Left to Do the Job that Law Enforcement Won’t →The Repo Loan Crisis, Dead Bankers, and Deutsche Bank: Timeline of Events

By Pam Martens and Russ Martens: September 30, 2019

Deutsche Bank Headquarters in Frankfurt, GermanyDeutsche Bank Headquarters in Frankfurt, Germany Have Been Raided Twice in Less than a Year

Last week, as the Fed was carrying out hundreds of billions of dollars in emergency loan operations on Wall Street for the second week in a row – the first such operations since the financial crisis – Deutsche Bank’s headquarters office in Frankfurt, Germany was being raided by police for the second time in less than a year. That’s not the sort of thing that inspires confidence among depositors to keep their money in your bank.

Deutsche Bank has been a constant headache for the U.S. financial system because it is heavily intertwined via derivatives with the big banks on Wall Street, including JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America. It has become the dark cloud on the horizon in the same way Citigroup cast a negative pall in the early days of the financial crisis of 2008. (It’s not a good omen that Citigroup’s stock eventually went to 99 cents and the bank received the largest taxpayer and Federal Reserve bailout in U.S. history. The Fed alone secretly pumped $2.5 trillion in revolving loans into Citigroup from December 2007 to the middle of 2010.)

The latest raid at Deutsche Bank occurred on Tuesday and Wednesday of last week, September 24 and 25, and was related to the $220 billion money laundering probe of Danske Bank, Denmark’s largest lender. Deutsche Bank served as correspondent bank to Danske’s Estonia branch where the laundering is alleged to have occurred. On Wednesday, as the raid was proceeding, the body of Aivar Rehe who previously ran the Estonia business of Danske Bank, was discovered by police in Estonia. Rehe had been questioned by prosecutors and was considered a key witness in the probe. His death is being called an apparent suicide by European media.

On the day the police raid started at Deutsche Bank, Tuesday, September 24, the Federal Reserve Bank of New York offered $30 billion in 14-day emergency term loans and had demand for more than twice that amount. That led the New York Fed to increase its subsequent 14-day term loans from $30 billion to $60 billion later in the week. The Fed’s overnight repo loans that were offered every day last week were also increased from $75 billion per day to $100 billion per day.

As the timeline below illustrates, Deutsche Bank has been in a slow motion collapse as a result of its serial crime charges while international regulators have failed to address the fact that it is a counterparty to $49 trillion notional (face amount) in derivatives according to its 2018 annual report and thus presents systemic risk throughout the global financial system.

Wall Street On Parade believes that the repo crisis on Wall Street may, at least in part, relate to big Wall Street banks backing away from lending to Deutsche Bank. You can read the timeline below and make up your own mind.

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January 26, 2014: William Broeksmit, 58, was found hanged in his London home. Police ruled the death “non-suspicious.” Broeksmit was a senior executive at Deutsche Bank involved in assessing risk on the bank’s balance sheet. (See Documents Emerge in Senate Hearing from William Broeksmit, Deutsche Exec Alleged to Have Hanged Himself in January.) The death occurred on Sunday. Deutsche Bank’s stock closed the next business day at $49.94 in New York.

October 20, 2014: The body of Calogero Gambino, 41, was found by his wife hanging from a stairway banister in their Manhattan home. Gambino was a lawyer for Deutsche Bank who had been cooperating with U.S. regulators on Deutsche Bank’s involvement in the rigging of the interest rate benchmark, Libor. The stock closed at $31.09 in New York.

April 23, 2015: Deutsche Bank pleads guilty to the U.S. Department of Justice for its role in rigging the benchmark interest rate known as Libor. It pays fines of $2.519 billion to various regulators. Deutsche Bank’s stock closes at $34.15 in New York.

June 2016: The International Monetary Fund (IMF) releases a report that finds that Deutsche Bank poses the greatest threat to global financial stability than any other bank because of its interconnections to Wall Street mega banks and large banks in Europe. (See graph below.)

January 17, 2017: Deutsche Bank reaches a settlement with the U.S. Department of Justice in which it agrees to pay $7.2 billion in fines and restitution for its improper “packaging, securitization, marketing, sale and issuance of residential mortgage-backed securities (RMBS) between 2006 and 2007.” Deutsche Bank stock closes at $18.56 in New York.

January 30, 2017: Deutsche Bank was fined a total of $630 million by U.S. and U.K. regulators over claims it had laundered upwards of $10 billion on behalf of Russian investors. Deutsche Bank’s stock closes at $20.11 in New York.

November 29, 2018: Deutsche Bank’s headquarters in Germany were raided by 170 members of law enforcement. Prosecutors said at the time that “Deutsche Bank helped customers found offshore organizations in tax havens by transferring illegally acquired money without alerting authorities to suspected money laundering.” Deutsche Bank’s stock closes at $9.42 in New York.

May 19, 2019: The New York Times’ David Enrich writes the bombshell report describing how a Deutsche Bank whistleblower, Tammy McFadden, and four of her colleagues, had their efforts blocked by the bank when they tried to file suspicious activity reports on bank accounts affiliated with Donald Trump and his son-in-law/advisor Jared Kushner. The suspicious activity reports (SARs) should have been filed with the Federal agency known as FinCEN (Financial Crimes Enforcement Network) but were quashed by a unit of the bank that manages money for the super wealthy. The article appeared in the print edition of the New York Times on Monday, May 20, 2019. The stock closes that day at $7.43.

July 7, 2019: Deutsche Bank confirms plans to fire 18,000 workers and reorganize into a good bank/bad bank. The bad bank will hold assets it plans to sell. (This is what Citigroup did during the financial crisis.) Deutsche Bank stock closes on Monday, July 8, at $7.54.

September 24, 2019: German police raid Deutsche Bank headquarters for the second time in less than a year. Deutsche Bank stock closes at $7.58 in New York. (Deutsche Bank’s stock had traded for $120 a share in 2007.)

This past Friday, Deutsche Bank closed at $7.56 in New York trading. It had a common stock market capitalization of $15.63 billion with a derivatives book of $49 trillion. Its similarities to Citigroup in 2008 are mind-numbing given a decade of political talk about how risk has been reined in on Wall Street.

Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF — “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”)

The Federal Reserve Bank of New York first initiated its emergency overnight loans to Wall Street this year on Tuesday, September 17, starting off at the rate of $75 billion daily. It then increased its loans by adding, in addition to the $75 billion daily, 14-day term loans in the amount of $30 billion to be offered three times this past week. But after the demand for the first 14-day loan was more than double the $30 billion offered, the New York Fed boosted the next term loans to $60 billion and increased its overnight loans to $100 billion.

What will next week bring? When Wall Street can get super cheap loans from the Fed in the tens of billions of dollars with no questions asked by Congress, it will continue upping its demands until the Fed is once again secretly shelling out trillions of dollars while Congress willfully remains in the dark – in other words, a replay of the 2007-2010 financial crisis.

The New York Fed is only allowed to engage in these repo transactions with its 24 primary dealers. That list of 24 primary dealers includes the securities units of big U.S. banks like JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, but it also includes the U.S. based securities units of troubled foreign banks like Deutsche Bank, Credit Suisse, and Societe Generale (SocGen).

Because the New York Fed is not announcing which banks are drawing down the bulk of its loans, neither Congress nor the American people know if the money is flowing to U.S. banks or foreign bank subsidiaries in the U.S. Propping up troubled foreign banks is not what most Americans want their central bank to be doing.

If the New York Fed is secretly funneling money to a unit of Deutsche Bank to prop it up, the American people need to know about it and Congress needs to be asking questions. The Fed already got away with this during the last financial crisis, secretly funneling $77 billion to Deutsche from the Term Auction Facility (TAF), $1 billion from the Primary Dealer Credit Facility (PDCF) and a whopping $277 billion to Deutsche Bank from the Term Securities Lending Facility (TSLF) for a grand total of $354 billion in secret funding that Congress never approved or even knew about.

Only when the Government Accountability Office (GAO) released its one-time audit of the Fed in 2011 were Americans made aware of the unprecedented loans the Fed had made to Wall Street banks and their foreign derivative counterparty banks which tallied up to $16 trillion in cumulative revolving loans. But the GAO’s report was $13 trillionshort of the full amount the Fed funneled in banking support through additional programs the GAO did not report. When those programs are added in, the figure is $29 trillion according to the Levy Economics Institute’s analysis.

Deutsche Bank is a likely candidate to be having funding problems. Its attempt to merge with Commerzbank fell through in April. Its latest plan is to fire 18,000 workers and create a good bank/bad bank, isolating off unwanted assets that it plans to sell. Deutsche Bank has run through four different CEOs in the past four years and incurred losses in three of those years. Its share price has lost 90 percent of its value over the last dozen years and it is trading close to an historic low as of yesterday. On Monday it reported that its prime broker unit, that makes loans to hedge funds, was moving over to BNP Paribas along with its electronic trading operations.

Unfortunately for U.S. investors, Congress has taken no action to rein in the systemic risks on derivatives held by these behemoth global banks. Deutsche Bank is heavily interconnected via derivatives to U.S. banks including JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America. If it blows up, it has the potential to spread the kind of systemic contagion that Lehman Brothers spread in 2008 — seizing up lending between banks because no one knows who has exposure.

Credit Suisse, another primary dealer, is also having difficulties with its share price losing 78 percent of its value since 2007. SocGen has also had a bad decade since the crash with its share price losing 66 percent of its value.

According to the report out this morning from the New York Fed, demand for its emergency loans has quieted down some this morning. Of the $100 billion it offered out to its primary dealers for a 3-calendar day loan (to cover this weekend), only $22.7 billion in bids were submitted for the loans. Of the $60 billion it offered out in 14-day term loans, banks only bid for $49 billion.

That’s a big change from this past Tuesday when the New York Fed offered $30 billion in 14-day term loans and banks asked to buy (bid for) $62 billion.

Wall Street On Parade is not the only financial news outlet that thinks there is something much bigger than a technical/seasonal funding problem happening on Wall Street. John Dizard wrote this yesterday at the Financial Times:

“In recent days, some banks and dealers have wound up paying hundreds of basis points over the Fed funds target rate for their short-term money. The implication, to money market people, is there are big unknown counterparty risks out there and nobody wants to get caught in another ‘Lehman’ workout. ”

Simple math tells you that something is very wrong. As we wrote previously:

“As of June 30 of this year, the four largest banks on Wall Street (which are allowed to own Federally insured commercial banks as well as stock, bond and derivative gambling casinos known as investment banks) held more than $5.45 trillion in deposits. The breakdown is as follows: JPMorgan Chase holds $1.6 trillion; Bank of America has $1.44 trillion; Wells Fargo has $1.35 trillion; and Citibank is home to just over $1 trillion.”

The entire GDP for the United States last year was $20.5 trillion. The four banks mentioned above have 27 percent of the entire U.S. GDP in deposits. How could it be possible that those four banks can’t come up with $100 billion in repo loans per day and thus are forcing the Fed to once again become the lender of last resort.

Congress needs to call hearings on this matter immediately, calling as witnesses the President of the New York Fed and the CEOs of each of the mega banks holding these trillions in deposits.

I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.You don’t know what it is but its there, like a splinter in your mind

The Fed is injecting hundreds of billions into markets — and it's a practice that could become the new normalGina HeebSep. 30, 2019, 11:12 AM

REUTERS/Ann Saphir

Short-term rates shot up as high as 10% early this month, threatening to disrupt the bond market and the overall lending system. The Fed has conducted special operations several times after that in an attempt to keep interest rates in the intended range. To avoid such risks, the New York Fed chief said the central bank could consider the implementation of an ongoing facility for overnight repurchase agreements. Visit the Business Insider homepage for more stories.

After injecting hundreds of billions of dollars into financial markets in recent weeks, the Federal Reserve could soon take steps toward a more permanent solution to stave off trouble in money markets.

The Fed has conducted special operations several times throughout September in an attempt to keep interest rates in the intended range, the first time it had taken such actions since the financial crisis a decade ago. Short-term rates shot up as high as 10% early this month, threatening to disrupt the bond market and the overall lending system.

In an interview with the New York Times published Sunday, New York Fed President John Williams said the central bank could consider the implementation of an ongoing facility for overnight repurchase agreements, or repos, to avoid such risks in the future.

"We are seeing that liquidity doesn't move around as easily in these situations, which means that if we want interest rates to stay kind of on their own in a narrow range, that we have to make sure we have that amount of reserves to support that," Williams said.

A shortage in the amount of cash banks had on hand for short-term funding needs began to dry up in early September after businesses had to pay quarterly tax bills at the same time that the Treasury issued billions in new bonds.

"As we think about permanent solutions, the big issues, I think, are: what is the right level of reserves," he said.

Read more: The Fed has pumped hundreds of billions into the market through 'repo' offerings. Here's what they are, and why they're back for the first time since the financial crisis.

The central bank said this month it would offer a series of daily and 14-day term repos for an aggregate amount of at least $30 billion each. It also announced daily repos for an aggregate amount of at least $75 billion each until October 10.

In a statement, policymakers added that they planned to continue to "conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined."

The Fed drew criticism for what some economists and analysts perceived as a slow response to a situation that they said could have been avoided. Williams pushed back against those assessments, along with questions over whether recent leadership changes added to issues.

"It was all hands on deck. Everyone was working tirelessly to understand what was happening," Williams said. "The team operated magnificently, there was no delay, there was no hesitation — there was no, in any way, feeling that people weren't sharing and discussing things very quickly."

The policy-setting Federal Open Market Committee cut its benchmark interest rate to a target range of between 1.75% and 2% in mid-September. Fed Chairman Jay Powell said the interventions had been temporary and that rates were expected to return to the target range.

"Funding pressures in money markets were elevated this week, and the effective federal funds rate rose above the top of its target range," he said. "While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy."

← The Fed Is Offering $100 Billion a Day in Emergency Loans to Unnamed Banks and Congress Is Not Curious Enough to Hold a HearingTom Mueller’s New Book Shows How Whistleblowers Are Increasingly Left to Do the Job that Law Enforcement Won’t →The Repo Loan Crisis, Dead Bankers, and Deutsche Bank: Timeline of Events

By Pam Martens and Russ Martens: September 30, 2019

This is (just another) absolutely terrific by the Martens. If you read nothing about money, read this.

The timeline is particularly telling, especially this gem:

Quote

May 19, 2019: The New York Times’ David Enrich writes the bombshell report describing how a Deutsche Bank whistleblower, Tammy McFadden, and four of her colleagues, had their efforts blocked by the bank when they tried to file suspicious activity reports on bank accounts affiliated with Donald Trump and his son-in-law/advisor Jared Kushner. The suspicious activity reports (SARs) should have been filed with the Federal agency known as FinCEN (Financial Crimes Enforcement Network) but were quashed by a unit of the bank that manages money for the super wealthy. The article appeared in the print edition of the New York Times on Monday, May 20, 2019. The stock closes that day at $7.43.

We're back to counting dead bankers. It may be that having HIV is safer than working for Deutsche Bank.

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) has become so big that some rival banks and analysts say changes to its $2.7 trillion balance sheet were a factor in a spike last month in the U.S. “repo” market, which is crucial to many borrowers.FILE PHOTO: A J.P. Morgan logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith/File Photo

Rates in the $2.2 trillion market for repurchase agreements rose as high as 10% on September 17 as demand for overnight cash from companies, banks and other borrowers exceeded supply.

While not seen as an sign of distress as it was during the collapse of Bear Stearns and Lehman Brothers in 2008, the spike did prompt the U.S. Federal Reserve to promise to lend at least $75 billion each day until Oct. 10 to relieve the pressure.

Analysts and bank rivals said big changes JPMorgan made in its balance sheet played a role in the spike in the repo market, which is an important adjunct to the Fed Funds market and used by the Fed to influence interest rates.

Without reliable sources of loans through the repo market, the financial system risks losing a valuable source of liquidity. Hedge funds, for example, use it to finance investments in U.S. Treasury securities and banks turn to it as option for raising suddenly-needed cash for clients.

Publicly-filed data shows JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent, by $158 billion in the year through June, a 57% decline.

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Although JPMorgan’s moves appear to have been logical responses to interest rate trends and post-crisis banking regulations, which have limited it more than other banks, the data shows its switch accounted for about a third of the drop in all banking reserves at the Fed during the period.

“It was a very big move,” said one person who watches bank positions at the Fed but did not want to be named. An executive at a competing bank called the shift “massive”.

Other banks brought down their cash, too, but by only half the percentage, on average.

For example, Bank of America Corp (BAC.N), the second-biggest U.S. bank by assets, with a $2.4 trillion balance sheet, took down 30% of its deposits, a $29 billion reduction.

Overall deposits at the Fed from banks have come down over the past year as a consequence of the central bank’s decision to gradually reduce the vast holdings of bonds it had acquired to bolster the economy after the financial crisis. As the Fed has run off its bond portfolio, its deposits from banks have also declined.

“All of the banks were doing this to a degree,” said one Wall Street banking analyst, requesting anonymity because he was not authorized to speak on the record, adding: “JPMorgan does look like an outlier here”.

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(GRAPHIC - Bank reserves held at the Fed: here)Reuters Graphic

POST-CRISIS RULES

In the past JPMorgan would have gladly seized the opportunity to lend cash in the repo market, where loans are backed by the best collateral, often U.S. Treasury securities.

But on Sept. 17 even as the majority of repo loans were being made at 5% and above, twice the usual rates, JPMorgan was limited in how much of its remaining cash it could provide because of regulatory and other constraints, a person familiar with the trading said.

The spike in rates reflected extra demand for cash, which was widely anticipated due to corporations requiring cash to make scheduled tax payments and banks and other firms needing it to buy newly-issued U.S. Treasury securities.

Without the constraints on JPMorgan, the rate wouldn’t have spiked to 10%, the person said.FILE PHOTO: United States one dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington November 14, 2014. REUTERS/Gary Cameron/File Photo

JPMorgan made the biggest draws from the Fed late last year and bought securities, winning praise from analysts for locking in fixed interest rates before Federal Reserve cuts. Buying the securities also offset pressure on JPMorgan’s mortgage loan portfolio from falling rates.

JPMorgan also needs cash for sudden demands by corporate depositors and to meet government requirements for reserves on checking account deposits.

It must also comply with rules adopted since the financial crisis which require banks to keep additional cash in case they fail and the government needs to transfer their operations in viable condition to other firms. Banks do not disclose how much of this so-called resolution cash they must hold, but some analysts believe the amount is significant.

Another post-crisis regulation imposes a capital surcharge on banks that are most important to the global financial system and it gives JPMorgan particular reason not to make repo loans going into the last three months of the year.

That is especially true for repos with firms from abroad, which include U.S. branches of foreign banks and Cayman Islands-registered hedge funds.

Such loans could push JPMorgan’s surcharge higher, requiring it to carry an additional $8 billion of capital, a Goldman Sachs research note said.

JPMorgan’s capital surcharge is already the highest of any U.S. bank, which means its must make more profit from its business to produce the same return on shareholder equity.

Goldman analysts see the repo market pressures continuing under the regulatory constraints and what they believe is a shortage of extra cash on deposit at the Fed.

The Federal Reserve has said it is considering bolstering the market in the longer term by encouraging banks to build up their cash deposits. It has also discussed opening a standing repo facility to be a reliable source of cash loans.

Reporting by David Henry in New York. Additional reporting by John McCrank. Editing by Paritosh Bansal and Alexander Smith

New York (CNN Business)Say what you will about President Trump's unusually loud critiques of Jerome Powell, his hand-picked chairman of the Federal Reserve. But Trump is not wrong when he says that interest rates in the United States, even after two recent cuts, are higher than they are in much of the rest of the developed world.Now Powell is likely to face even more pressure to cut rates in the coming months -- especially since Trump's trade war with China appears to be hurting the US economy.So let's get out our limbo sticks. How low can rates go? Could the Fed even cut into negative territory the way that the European Central Bank and Bank of Japan have done? More importantly, is that what the Fed should do?More rate cuts are likely as the US economy slows. This week's tepid ISM Manufacturing and services numbers, and a lower-than-expected jobs gain for private employers reported by payroll processor ADP are signs that the trade war is having a negative impact on the labor market.

That's hit both the stock market -- which has stumbled this week -- and the bond market. The yield on the 10-Year Treasury fell to 1.51% Thursday and is once again inching toward record lows.Negative interest rates are inflating real estate prices. These cities are at risk of a bubbleNegative interest rates are inflating real estate prices. These cities are at risk of a bubbleStill, some question whether the US economy needs rates to go all the way to zero -- or below that. Conditions are not exactly dire. After all, the only other time the Fed slashed rates to zero was during the 2008 global financial crisis."Will the Fed keep cutting rates marginally? Yes. But I don't expect a repeat of 2008," said David Page, head of macroeconomic research at AXA Investment Managers.The economy is weakening, but this isn't another Great RecessionPage said he's penciling in one more rate cut this year -- probably in December. But he conceded that if there is more weak economic data, particularly in Friday's jobs report, then the Fed might cut rates in October and December. After that, he believes the Fed will stop.The market agrees. According to federal funds futures contracts traded on the CME, there is now a 90% probability of a cut at the October 30 meeting. That would push rates down to a range of 1.5% to 1.75%.Look out further and the market is pricing in a more than 85% chance of one more rate cut to 1.25% to 1.5% by April, but just a 50% likelihood that rates will fall to a range of 1% to 1.25 or lower.The Fed&#39;s worst nightmare could be around the cornerThe Fed's worst nightmare could be around the cornerWith that in mind, investors shouldn't expect rates to even drop as far as zero, let alone negative territory."Could the U.S. experience what Japan and several countries in Europe have seen recently -- a combination of negative central-bank policy rates and negative nominal government bond yields? While this scenario is possible in the U.S., we believe it has a very low probability of occurring," said Luis Alvarado, investment strategy analyst with Wells Fargo Investment Institute in a report.Alvarado notes that there are legal questions as to whether the Fed even has the authority to lower rates below zero. He also pointed out that Powell and other Fed members have said they aren't a fan of negative rates.Lower rates aren't a panaceaIf anything, the Fed would be more likely to restart quantitative easing, the policy of buying Treasury bonds and mortgage-backed securities that it used during the financial crisis, as a way to push down long-term rates.Page said such a move would likely weaken the dollar. In theory, that could boost US exports and the profits of American multinational firms. But there's also this little thing called a trade war that's likely to dampen things for American companies no matter what happens to the dollar.Lower interest rates bring serious consequences that are probably weighing on the minds of Fed members, as well.Low rates discourage people from saving, since banks will likely slash the amount of money they pay on deposit accounts as interest rates tumble. That would hurt anyone who has more of their retirement savings in supposedly safer bonds or cash.E-Trade cuts commissions to zero along with rest of brokerage industryE-Trade cuts commissions to zero along with rest of brokerage industryAnd financial firms would be hurt as well.KBW analyst Fred Cannon noted in a recent report that earnings estimates for large regional banks -- such as Comerica (CMA), Zions (ZION), M&T (MTB) and Fifth Third (FITB) -- would plummet if interest rates continue to fall.That's because these banks won't be able to make as much money from loans in a lower (or negative) rate environment.Cannon said negative rates would also be bad news for online brokers, since they are so dependent on the health of the broader market for their revenue.The industry is already reeling now that Charles Schwab (SCHW), TD Ameritrade (AMTD), E-Trade (ETFC) and Interactive Brokers (IBKR) have all slashed commissions for stock and ETF trading to zero.

The last thing that this group needs is further pressure on their bottom line due to lower interest rates.So unless things get really bad for the broader economy, the Fed will likely resist the calls from Trump and the bond market to go back to zero or experiment with negative rates.

This is a very conventional analysis that tries to make analogies with much smaller Sovereign Defaults like Greece. It would be nothing like that.

If the FSoA defaults, the whole monetary system collapses. Unemployment would increase by 20%, NOBODY would have jobs, at least in the conventional sense. Since it's the reserve currency, every other currency would collapse as well.

You would have to rebuild an entirely new system, and there is about no way to do that because the resources upon which it is all based are running so thin.

Yeah, and I think you are being optimistic . It would be permanent TEOTWAWKI and many would die of starvation. This video was simplistic. Sure Greenspan can say that the USA can just print money (as he sits on a pile of gold - Scrooge McDuck?) and then we become Zimbabwe or Weimar.Thanks RE,AJ

Yeah, and I think you are being optimistic . It would be permanent TEOTWAWKI and many would die of starvation. This video was simplistic. Sure Greenspan can say that the USA can just print money (as he sits on a pile of gold - Scrooge McDuck?) and then we become Zimbabwe or Weimar.Thanks RE,AJ

Well, you're not Zimbabwe or Weimar as long as you have the Big Ass Military. Then you move to an outright THEFT economy, and go to WAR.

After being bankrupted in the Weimar era, remeber how the Krauts tried to fix things? They went full-on NAZI and tried to take over the WORLD. They lost, the fascists in the FSoA won, and they settled on a ssystem at Bretton Woods. Worked OK for 70 years or so while resources were still plentiful. Won't work now.

This one really WILL be the "War to End All Wars", at least in the Global Sense. Nobody can win that. It will take some time to play out though.

Federal Reserve officials have been working feverishly to address issues that popped up more than a month ago in the overnight bank lending market. The central bank last week started a new bond-buying program that is expected to grow its balance sheet by $60 billion a month to start. J.P. Morgan Chase analysts, among others, worry that recent additional hiccups in overnight lending are symptoms of bigger problems that will grow worse as the year comes to a close.

Wall Street is getting worried that the Federal Reserve’s aggressive efforts to control short-term borrowing rates have run into some potholes, with more danger ahead.

The central bank has been working feverishly to address issues that popped up more than a month ago in the repo market, the overnight lending place where banks go to borrow money from each other. A cash crunch led to a spike in several rates, leading the Fed to institute programs to maintain proper liquidity levels.

While the effort has worked fairly well so far — rates rose last week, though not nearly as much as in mid-September — finance professionals fear that the market problems are not fixed and funding issues can happen again.watch nowVIDEO07:01Pimco founder Bill Gross on the U.S. economy and Fed policy

“The repo market has been drugged into submission by the Fed,” said Jim Bianco, head of Bianco Research. “That’s fine for a while. But what I am getting concerned about is that they’re not figuring a way to get it off the drug and get it back to normal, and that will be a problem longer term for them.”

Investors have long complained about the Fed hand-holding the market, injecting trillions of dollars in liquidity and keeping interest rates artificially low during and after the financial crisis.

This is a different situation, though.

Rather than looking to goose the economy back to health, the Fed is now using its balance sheet to make sure banks have enough reserves and an adequate amount of capital is flowing through the system to keep things running efficiently. The effort also is aimed at keeping the Fed’s own overnight funds rate within the 25 basis point target range it employs.Likely ‘to get worse ... before it gets better’

To do so, the central bank earlier this month announced a new bond-buying program that initially will target about $60 billion a month of short-term Treasury bills. The program began last week with about $20 billion worth of purchases.

As the balance sheet expansion kicked off, the funds rate pushed to the upper end of its target range, hitting 1.9% for a few days, or 10 basis points above the interest on excess bank reserves, which is supposed to serve as a guardrail for the funds rate. The repo rate similarly rose, eclipsing 2% at one point.

Market pros worry that a confluence of factors will make the Fed’s market balancing act difficult.

Bianco insists that the Fed is not being discerning enough about credit quality in providing cash in exchange for collateral; others are concerned with what happens as the year draws to a close and banks are more focused on shoring up their liquidity mandates than keeping cash flowing in the overnight markets.

“With year-end coming up, this is all likely to get much worse, in our view, before it gets better,” J.P. Morgan Chase fixed income analysts led by Joshua Younger said in a note.

Younger pointed to last week’s rate bump as indications that all is not settled in the repo markets.

The Fed has said that large settlements of Treasury auctions were at the root of September’s disturbance — along with payment of corporate income taxes — that sapped money out of the system. But Younger said such events, rather than serving as excuses, “look much more like warnings.”

“Given the benefits of our newfound perspective, we recommend viewing these moves as highlighting the limitations of the Fed’s chosen solution to their operational issues,” he wrote.

In addition to buying T-bills, the Fed has been conducting a series of temporary operations to keep the overnight markets humming.The balance sheet is ‘a much bigger deal’

At the heart of the issue is how much bank cash, or reserves, the Fed should be holding. The central bank had cut the reserves level by more than $600 billion by allowing a capped level of maturing bond proceeds to roll off each month. However, the operation, nicknamed “quantitative tightening,” seemed to go too far, shaking confidence in whether the Fed indeed was operating in an “ample reserves” regime.

Bianco said one way the Fed can help the market is by showing it is taking the reserves situation seriously.

Former Fed Chair Janet Yellen, who presided when the balance sheet reduction operation began in October 2017, remarked that the process would “run in the background” and be “like watching paint dry,” remarks that are now widely derided in the finance community. Similarly, current Chairman Jerome Powell said in December that the process was on “autopilot,” another characterization that rankled markets as it signaled more tightening to come.

“We’re learning it’s a much bigger deal that what the Federal Reserve stated it was,” Bianco said. “They should acknowledge that movements in their balance sheet matter a lot more than they say.”

In that light, Bianco said the Fed should probe deeper into whether its own liquidity and capital requirements for banks are gumming up the lending portals. Fed officials so far have mentioned regulations in passing but have not made a commitment to review the rules.

For their part, Fed officials have been stressing a couple of points: that the measures taken during September’s repo market stress have worked, and that investors should not confuse the current balance sheet expansion with the quantitative easing measures taken to address the crisis.

“Our open market operations have succeeded at keeping the federal funds rate within the target range and have stabilized conditions in short-term funding markets,” New York Fed President John Williams said in a speech Friday. “At the same time, recent experience has provided important lessons for the successful operation of the ample reserves framework.”

Williams added that the Fed will continue to monitor the reserves situation “and may adjust the specifics of the plan as appropriate.”

Still, others on Wall Street, including Goldman Sachs and Bank of America Merrill Lynch, have warned about possible disruptions in the overnight funding markets, though BofAML said the year-end issues could be classified as “typical.”

The balance sheet expansion “represents a necessary step that serves to fix the reserve hole the Fed dug itself into by continuing QT for too long, should firmly place the Fed back into an ‘abundant reserve regime,’ and represents a rapid shift away from repo operations to permanent balance sheet growth,’” wrote Athanasios Vamvakidis, a forex strategist at BofAML.

Does the Fed really know what is doing? This seems like they are "winging it" and making up ad hock explanations after the fact?AJ

Pretty much. A hole springs in the dyke, and Da Fed sticks in a finger to plug it. Then another hole springs up, and they stick in another finger. When they run out of fingers, they wad up some green toilet paper and use that to plug the holes.

Sen. Elizabeth Warren is pressing Treasury Secretary Steven Mnuchin for answers on recent events in the overnight lending, or repo, markets. In a letter, the Democratic presidential candidate says she worries banks will use the issue as an excuse to get financial regulations eased.

Sen. Elizabeth Warren said she is worried that banks may try to use the recent tumult in short-term lending markets as an excuse to get regulations eased on the industry.

In a letter to Treasury Secretary Steven Mnuchin, the Massachusetts Democrat and presidential contender pointed to the mid-September repo market turmoil and the causes that have been cited for the issues, such as a rush of corporate tax payments and government bond auction settlements that drained money from a system that usually functions smoothly.

A cash crunch in the system saw overnight lending rates spike, with the repo rate briefly hitting 10%.watch nowVIDEO01:44What it means when the Fed conducts a ‘repo’ operation

Other discussions of the funding issues have centered around banks and whether they are too reluctant to part with cash that would be used in repo, where banks go to get overnight funding.

Warren, a member of the Senate banking committee, said she is “concerned” about that issue and whether Wall Street institutions will try to assert that liquidity regulations imposed after the financial crisis are too strict and interfering with lending market functions.

“These rules were designed to ensure that banks have enough cash on hand to meet their obligations in the event of another market crash,” Warren wrote in a letter dated Friday and released Tuesday. “Banks are reporting profits at record, levels, and it would be painfully ironic if unexplained chaos in a small corner of the banking market became an excuse to further loosen rules that protect the economy from these types of risks.”

The Treasury did not immediately respond to the Warren letter specifically. A spokesman referenced unspecified remarks last week from Mnuchin on the repo issue.Treasury Secretary Steven Mnuchin arrives to testify before a House Financial Services Committee hearing on Trump administration efforts to remove Fannie Mae and Freddie Mac from government conservatorship on Capitol Hill in Washington, U.S. October 22, 2019.Julio Cortez | Rueters

Fed officials have looked at why banks were reluctant to step into the repo markets during the September rate spike.

“They should think about regulations, liquidity cover ratios, Basel 3, all of the rules that have been put on banks to not lend out their cash to make sure that they’re very liquid and have high capital,” said James Bianco, head of Bianco Research. “That needs to be addressed, that you’ve overregulated the market.”

Warren’s letter addressed Mnuchin’s role as head of the Financial Stability Oversight Council.

She posed three questions she wants answered by Nov. 1, focusing on the causes of the spike in borrowing rates, why the New York Fed has extended operations to address the funding issues, and what the FSOC will do with data it is collecting on repo transactions.

“I do not question the actions of the New York Fed, but I write to seek clarity on why they were necessary, and the implications of the cause of the spikes,” Warren wrote.

I know exactly what you mean. Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world.You don’t know what it is but its there, like a splinter in your mind